Uncle Hank’s Christmas Club Account

by Bryan

So the worms in Congress caved in [again] and are depositing $ 700 gigabucks in Paulson’s account so he can hand out gifts to the financial system. Being a bit old-fashioned I’m under the belief that the “toys” should be for “good little girls and boys”, but only the “naughty” group are getting presents.

Since the beginning of this “bailout”, I’ve been under the opinion that “bailing” is doomed to failure unless you haul the vessel into drydock and fix the leaks. Sooner or later the pumps will fail.

The people in the government who are going to be handing out this money, are the same people who failed to notice how bad things were until they were on the verge of collapse. Wall Street and Washington have been dismissing as alarmist those who have been warning about these problems for over three years.

We are told that Bernacki is right man to lead the Fed because he is an “expert” on the Great Depression. If he’s an “expert” why didn’t he notice that we were on the verge of the Greater Depression? If he is such an “expert” why hasn’t he suggested any of the programs that actually helped overcome the Depression, like the HOLC?

The way I see it, the people who failed to properly manage huge sums of money are being given huge sums of money to fix the mess caused by their greed and incompetence. This is the sort of conduct that got Louis XVI in a lot of trouble and ended in the Reign of Terror.

I suggest you go look at the Fed’s balance sheet for the three years since Bernanke came on board. Every mistake the Fed made during the Great Depression, Bernanke has done exactly the opposite. The Fed clamped down on liquidity during the Great Depression. Bernanke has printed money with all the abandon of a Weimar Republic finance ministry. There are political limits to what a Federal Reserve chairman can do, he cannot realistically propose legislation to Congress or force the Executive branch to do anything, but everything that is possible for a central banker to do without political help, he has done.

Unfortunately, as I point out in my latest posting on my own blog, we still have at least a 30% drop in housing prices before the situation stabilizes. This is going to continue to play hell with GSE and bank balance sheets as all that money vaporizes out of the system. Bernanke has limited means of injecting new money into the system via the banking system, what he needs is a lot of government bonds to buy, which in turn allows him to inject capital via the bailout mechanism. This particular bailout bill, while far, far, far from ideal, at least gives him that. It’s not perfect. But the last thing you should do when the boat is taking on water is quit bailing because your current bail is a little leaky…

The assumption being, of course, that this money will in fact be used as the public has been led to believe it will be used. Notice, I didn’t use the phrase ‘as intended’. LOL It wouldn’t surprise me to see little change and things get worse and the money disappear, and then all the doors of these people will suddenly sprout *gone fishing* (sorry, *gone hunting*) signs and they’ll all go on a little trip elsewhere. Like Chaney suddenly going hunting in Dubai. *shrug*

And even if they do decide to use the money as promised, they are too stupid to do much good anyway. Screwed either way IMHO. 🙂

This isn’t 1929 unless we are playing the Weimar Republic this go around, which, given out war debt is possible. Finance is not binary and there is no reason to assume that, because tight money was a problem the last time, easy money is the solution this time.

The problem is with the banking and insurance systems this time, and the problem it that they don’t trust each other enough to lend the money they have, as they know how corrupt and tenuous the system is.

The one important way in which Bernacki acted in exactly the same way as happened in the Great Depression was not speaking out when he realized the pathetic shape the financial system was in. There’s nothing wrong with yelling “Fire!” in a crowded theater when there is a fire.

We have never really recovered from the last recession, and when the GDP is as dependent on consumer spending as the US economy is, the lack of job growth and stagnant wages only require a spike in a necessity, like energy, to set things into a “flat spin”. House prices have dropped 30% down here but no one is buying. If they go any lower no one will bother to build, because the cost of materials makes it a losing proposition.

I think they waited too long, Kryten, to make much difference. When real investors started looking at balance sheets after they were required to rank assets, it became obvious that many financial institutions were in pitiful shape. When the mortgage-based Ponzi scheme came crashing down as a result of the housing bubble bursting, the reality was there for all to see.

"A person who has a cat by the tail knows a whole lot more about cats than someone who has just read about them."

Mark Twain

"There are two novels that can change a bookish 14-year old's life: The Lord of the Rings and Atlas Shrugged. One is a childish fantasy that often engenders a lifelong obsession with its unbelievable heroes, leading to an emotionally stunted, socially crippled adulthood, unable to deal with the real world. The other, of course, involves orcs."

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